Malaysia: Retailers, Consumers Expect to Benefit from Brief Tax Holiday

Malaysian retailers and consumers are expected to cash in on a brief tax holiday following the election of a new government which has effectively scrapped an unpopular goods and services tax (GST) and replaced it with a new sales levy effective in September.

The government of Prime Minister Mahathir Mohamad, meanwhile, believes it can keep the country’s budget deficit under control despite the abolition of the 6 percent GST, introduced in 2015 by his predecessor Najib Razak’s Barisan Nasional administration.

Mahathir’s Pakatan Harapan, which scored an upset May 9 election victory, pledged to scrap the GST if it came to power, saying the tax which brought in billions of dollars in government revenue jacked up the cost of living.

Instead the new government planned to impose a more modest sales-and-services levy effective Sept. 1.

Retailers and consumers alike said they would benefit from the lowering of the GST to 0 percent as of June 1.

Amanullah Maideen, a member of the Malaysian Retailers Association, said the price of goods will continue to go down as old stocks are sold off and new zero-rated stocks arrive.

“Things will get cheaper, once new stocks arrive, it will.”

Less paperwork

Amanullah, who is also Malaysian Muslim Wholesalers and Retailers Association (MAWAR) president, said retailers were relieved to have less paperwork following the GST abolition. There was a 10 percent daily penalty for those who were late in submitting their tax returns.

The government said businesses have been given a month to replace price tags on goods to reflect the adjusted pricing, which is expected to boost sales ahead of the Muslim Eid al-Fitr festival marking the end of the Ramadan fasting month.

“We know that those wanting to purchase big ticket items such as TVs or refrigerators have been surveying the prices for the last few weeks so that they can make the purchase after GST has been zero-rated,” Domestic Trade, Consumerism and Cooperatives Ministry enforcement director-general Datuk Roslan Mahyuddin was quoted in The Star newspaper.

“I believe now that prices are down, people will feel encouraged to spend,” he said after inspecting prices at a sales center.

The government is set to lose 21 billion ringgit (U.S. $5.28 billion) in annual revenue from the GST removal, but it remains confident the budget deficit will not widen because of prudent spending measures, Finance Minister Lim Guan Eng told a briefing to foreign media at his office last week.

“The measures are focused on the review of expenditures, including the downsizing, delaying and abolition of overlapping and non-urgent programs and projects,” he said, projecting 10 billion ringgit ($2.5 billion) in savings in annual expenditure costs.

The government’s projected budget deficit would increase slightly to 40.1 billion ringgit ($10 billion) in 2018 from 39.8 billion ringgit, with the deficit maintained at 2.8 percent of gross domestic product (GDP), the value of the country’s goods and services produced.

It also believes that the 21 billion ringgit ($5.2 billion) that went into government coffers through the GST will instead be injected into local economies in the form of disposable income.

Lim and other officials say the new government has inherited 1 trillion ringgit ($250 billion) in debt and liabilities, blaming it on alleged abuses by the scandal-plagued Najib administration. Najib is being investigated for corruption over a multi-billion dollar scandal at state fund 1Malaysia Development Berhad (1MDB).

The former prime minister had said that the GST was aimed at weaning the petroleum-producing country away from being overly reliant on oil.

Meanwhile, the new sales tax beginning Sept. 1 is expected to rake in an additional 4 billion ringgit ($1 billion) in revenue this year, the finance ministry has estimated.

The SST rate was expected to be around 10 percent. SST was Malaysia’s tax system prior to GST’s implementation in 2015.

“It will be a new tax, we are not re-implementing the previous SST tax. There are things that we are looking into right now. In the meantime there will be a three-month tax-holiday until we table the new SST in parliament in September,” Lim said.

The GST was imposed on products and services at each level of the supply chain while the SST will be limited to manufacturing and services, and imposed at only one level.